Friday 29 March 2013

Orthodoxy vs Orthopraxy

It's a holiday!

Just thought I'll write something more celebral today (or so I think).

Let's introduce 2 big words:

Orthodoxy - correct belief

Orthopraxy - correct practice

No, I'm not giving a religious sermon today. Don't worry.

Just using these two spiritual words as moot points to explain how some traders and investors apply them on their financial journeys - sometime without being aware of it themselves!

Orthodoxy Traders

Should I use discretionary trading or should I trust mechanical systems trading? The faith is that once you get this big picture "belief" fit right with your temperament, the rest will fall into place.

How about the "correct" trade time frame to trade for you? 

Some will swear by day trading with no over night positions. The belief is that you with 1001 piranha bites, you too can reduce an elephant into bare bones. (Hmm, are there elephants in South America?) 

And the best thing is, you can have a full night's sleep in peace - every night.

Some will pooh-pooh these nimble-footed traders. Swing and position traders will prefer the meatier bite of a lion. A big kill can last you several days so lions don't have to hunt every day. Can sit in the shade and chill. 

But by going after bigger kills, you run greater risks of getting kicked in the face by hoves or gorged in the gut by horns if you are not alert. 

And if you can't finish your kill in whole that same day. you sleep at night tossing and turning afraid some other predators will steal your bounty in the middle of the night... 

Orthodoxy Investors

Oh! There's so many examples here. I'll just quote a few.

Buy and hold versus market timing?

Diversification versus concentrated focus?

You can't beat the market so do passive indexing versus I can beat the market active stock picking? 

Should I go for value, income, or growth stocks? (Hmm... Can I have all 3 in 1? Apple?)

Which asset class is the best? Some are one horse rider; while some have no problems riding camels, elephants, and dragons! (Opps! Please cross dragons out as I'm mixing fantasy with reality again)

Orthopraxy Traders and Investors

Both traders and investors in this school have a lot in common than they think! 

Investors buy when there's blood in the street and sell when everyone are in climatic raptures. It's similar to  a Trader's practice of fading a rally and buying the dip.

Traders let their profits run; cut losses when a trade goes against them. It's rhymes with an investor's maxim of weeding out losers and keeping only winners in a portfolio.

Buy low sell high. Can't be different between an investor and trader right?

It's all about "best practices" that bring home the bacon. Very practical stuffs. Can see and touch kind. 

Nobody cares about what you think; just your bottom line.

What if torn between Orthodoxy and Orthopraxy?
I have one good example here.

If you are a Buy-and-Hold believer, and you also a big fan of Warren Buffet's:

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1

Well, I have no solution as the solution has to come within from you.

It's like in the spiritual realms. First you have to decide to believe in one guru or many gurus.

Even if you believe in one guru, you'll still split into multiple denominations as everyone have their own interpretations on "correct practice".   
Me? I'll stick with my Hokkien street wisdom: 

Happy can oredi!


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